Node Provider Remuneration

Node providers receive rewards (remuneration) for operating node machines that run the IC network. The single source of truth for node provider rewards is the NNS, where changes can only be made through NNS proposals adopted by the IC community.

This page summarizes the current node provider rewards and serves to discuss proposals for future reward models. The NNS distributes rewards depending on

• the node hardware version

• geography

taking into account the fact that different hardware versions have different capex and opex that vary with the geography. The prices listed for hardware are based on quotes received from different vendors. See Node Provider Hardware for more details on validated hardware configurations. The calculations assume an amortization of CAPEX over 4 years. The actual hardware and operational expenses may differ depending on negotiation of individual NPs with their vendors. All prices are in XDR.

The above table clarifies the relationship between the different Hardware types and Remuneration models. Gen1 Hardware has been used by Node Providers to set up nodes during Genesis launch. For these Node Providers, what is called V1 (Version 1) Remuneration model applies. The V1 remuneration model is described below. As work is being done to upgrade the Gen1 hardware with additional storage, the V1 remuneration will need to be updated in the future. This updated remuneration, which will be called V1.1 (Version 1.1) remuneration, will be described in a separate wiki page once an NNS motion proposal for this remuneration has been worked out in detail.

For the further growth of the IC network, a Gen2 HW specification has been defined. The new Hardware specification is generic (instead of vendor specific) and supports VM memory encryption and attestation which will be needed in future features on the IC. Since the HW specification is different, a new version of the remuneration, which will be called V2 (Version 2) remuneration model is defined, and is described below. In the future, a remuneration will be proposed that is fully decentralized and includes both automated incentives, rewards and penalties. For clarity, this will be called V3 (Version 3) remuneration.

Version 1 Remuneration Model (Genesis)

The initial remuneration model included a margin of 150%, accounting for the fact that early NPs took on a significant risk when they decided to invest into hardware and operations prior to Genesis. In other words, the rewards distributed were 2.5 times the expected expenses. The following table provides an overview of expenses and rewards paid, broken down by geography.

	Total costs over 4 years	Incl. profit margin	Reward per month
USA	16766	41915	873
US - FL/GA/CA	20876	52190	1087
EU	20870	52175	1087
Asia	23271	58178	1212

After the first nodes were up and running, the decision was made to increase the storage capacity of all nodes to support larger subnet states. This required additional hardware and operational expenses. Once the additional storage is usable by the IC, it is proposed to update the Gen-1 remuneration model to cover all expenses. This will be detailed in a separate motion proposal to be voted upon by the community.

Version 2 Remuneration Model

This section presents a proposal for a new remuneration model. Based on the feedback from NPs and the community on the initial V2 remuneration proposal, discussed in this forum post, the following updates are proposed:

• Higher rewards for the first nodes of a new NP in order to attract more NPs in an effort to improve ownership decentralization.
• More refined rewards for nodes in new geographies, like South America, Africa, Asia and Australia, to stimulate further geographical decentralization.

Therefore it is proposed to introduce a node reward model parametrized by:

• Geography multiplier (mult): This multiplier will be lower, namely 2, for regions with many nodes (e.g. Europe and North America), and higher, namely 3, for regions where there are currently limited nodes present (such as Africa and South America)
• Reduction coefficient (r): The node reward of the n-th node of a Node Provider is multiplied by r ^ (n-1). The reduction coefficient r is dependent on the geography of the Node Provider. As a result, the first nodes of a Node Provider get attractive rewards but it is increasingly less attractive to add additional nodes.

The rewards are furthermore dependent on estimated capital and operational expenses that vary based on geographies. A table with the concrete numbers follows below.

In summary, for a geography g, let

• mult(g) be the geography multiplier
• cost(g) the total costs over 4 years for acquiring and maintaining a gen 2 node in g in XDR
• r(g) be the reduction coefficient

The monthly reward for the n-th node of a Node Provider in geography g are defined as follows:

reward(g, n) = cost(g) * mult(g) * r(g) ^ (n-1) / (4 * 12)

The total costs over 4 years are multiplied by the geography multiplier, multiplied by the reduction coefficient, and divided by 4 years times 12 months. As a result, rewards for nodes in new geographies and for Node Providers with few nodes are higher. Thereby, a geographical and ownership decentralization is incentivized. The following table shows the geography-dependent values and the monthly reward for the first node onboarded.

Geography	Total cost over 4 years	Multiplier	Monthly reward for 1st node	Reduction coefficient r
USA	31034	2	1294	0.7
US - FL/GA/CA	37031	2	1542	0.7
EU	36996	2	1542	0.95
Asia Singapore	40508	2	1688	0.7
Asia non Singapore	40508	3	2532	0.98
South Africa	43986	3	2748	0.98

For illustration, the below table shows the calculation of the rewards of the 1st to the 10th node for a Node Provider in South Africa.

reward(south africa, n)

= cost(south africa) * mult(south africa) * r(south africa) ^ (n-1) / (4 * 12)

= ( 21’455 + 22’531) * 3 * 0.98 ^ (n-1) / (4 * 12)

= 2748 * 0.98 ^ (n-1)

N-th node	Multiplier (rounded)	Monthly remuneration (rounded)
Node 1	0.98 ^ (1-1) =1	2748
Node 2	0.98 ^ (2-1) =0.98	2693
Node 3	0.98 ^ (3-1) =0.96040	2639
Node 4	0.98 ^ (4-1) =0.941192	2586
Node 5	0.98 ^ (5-1) =0.92236816	2534
Node 6	0.98 ^ (6-1) =0.9039207968	2483
Node 7	0.98 ^ (7-1) =0.885842309	2434
Node 8	0.98 ^ (8-1) = 0.8681255332	2385
Node 9	0.98 ^ (9-1) =0.8507630226	2337
Node 10	0.98 ^ (10-1) =0.8337477621	2291

Since the aim is to grow the IC network outside of existing geographies, a remuneration proposal will be prepared for South America, Australia, as well as other regions, which will be subsequently added to the reward table.

The above figure shows the additional cash flow (investments minus costs) a NP receives for adding an additional node, for three regions (South Africa, Europe and USA) that can be calculated based on the V2 remuneration model. Note that the calculation does not take into account the time value of the cash flows (i.e. discounted value), but purely the cash flows or rewards and expenses.

What is visible from this graph is that adding additional nodes only generates additional cash flow for a specific number of nodes, in a specific region. For example, in Europe adding up to approximately 15 nodes will generate additional cash flow, whereas for the US region this is only 2 nodes.

Potential new NPs can make a full calculation themselves of the Internal Rate of Return, Payback period and cash flow based on their actual CAPEX and OPEX costs. Of course, these actual CAPEX and OPEX costs may differ from the costs on which the remuneration is based, depending on the specific contracts the new NP has been able to negotiate with hardware vendors and DC operators.

The V2 remuneration proposal only applies for a limited period in which the team and community is working on a more elaborate and automated remuneration proposal, the V3 remuneration. This future remuneration will be based on a reduction coefficient formula that applies a combination of NP, Country, Data Center and city. In addition, the future remuneration model will include penalties in case nodes should be unavailable.